Definition and Causes of Unemployment
Discuss about the Challenges of Unemployment in Australia.
Unemployment problem is becoming a major challenge for small and major economies. Most nations are experiencing a significant level of unemployment rate. Many policies are put forward into boosting the creation of jobs. Unemployment has been associated with an increment in poverty levels in the society. These policies are targeted to raise its growth potential in the coming years to enable the creation of million jobs to keep up with the population growth. The only way to low the poverty level is to ensure that the unemployment rate is lowered as much as possible. There are many reasons why the Australian economy has suffered from high unemployment rate for a long period. One is that demand for labor has been weak and cyclical which has slowed down the growth of employment. However, the growth in population and the participation rate has resulted in a fast growth of the labor supply. There are also no efficiency in the matching of the unemployed persona with the vacant jobs due to structural influence. The Reserve Bank of Australia (RBA) noted that employment growth rate is too slow compared to the rate at which growth in the labor force is experienced
Like any other developed economies, Australia is trying to improve the labor market by supporting its economic growth. The private sector in Australia has been recognized from its high contribution on creating job opportunities. Thus, the government is thus improving its concern on improving the private sector by making businesses stronger and raising their ability to compete globally. This paper shall cover some of the key factors resulting in high unemployment in Australia, some of the policies implemented, common causes and the actual analysis of the changes during the past five years. This paper will be useful especially for policy makers.
Unemployment is defined as an economic situation where there are people in the labor force without jobs (Hubbard, Garnett, Lewis, and O’Brien, 2014). They are considered unemployed because they meet the three conditions set by the Australian government. One, they must be having no job; two, these people must be active in seeking employment; three, they must be available for a job opportunity that could be presented to them. When all this conditions are met, it’s now factual to estimate the unemployment rate which is the proportion of those who have met the conditions of being unemployed to the economy’s labor force. The conditions for unemployment excludes many people from being considered unemployment even if they have no job.
Unemployment Types in Australia
There are many factors that drives the high unemployment rate. One of them is the union pressures; the unions are distorting the market for labor where wages are determined by demand and supply. The equilibrium level cannot be achieved in this market because, the wage rates payable are above the equilibrium wage. At a lower wage rate, employers would be willing to add into their workforce some more labor and the unemployment rate would fall. However, the case for Australia is different, the high wages has led to businesses lowering their workforce as illustrated below.
If the market was on its own, the equilibrium wage is We and the capacity is Qe. However, due to monopoly pressures, the wage rate is fixed above We at wage Wu. At the higher wage Wu, businesses demand Q1 workers; but this high wage attracts many people to the labor force causing an oversupply of labor equal to Q2 – Q1. Q2 number of persons are willing to supply labor at wage Wu. The equilibrium is completely distorted.
Another important cause is the manufacturing costs. These costs are discouraging production and so there is no possibility for expansion. Many shops have closed down while others are on the way of doing so. Some bigger companies are looked forward to shifting their operations to other countries with better costs (Elaine, 2016). This is accelerated by the fact that countries are offering tax incentives for western investors to shift their businesses to their country. One of the industry most likely to cease operating in Australia according to Hawthorne (2015) is the car manufacturing industry. The proportion of the employment rate from the manufacturing industry has greatly declined over the years (Toth, 2016).
Structural Unemployment
This employment results from structural changes in an economy or in the line of job. For instance, let consider the impacts of introduction of a new technology, not all the previously employed employees will be able to adapt to the new technology. If the new technology requires all employees to be computer literate, only those who possess the skills will be maintained in the job; all others will lose their jobs. Those who lose their jobs are said to be structurally unemployed because there exist jobs that doesn’t match their qualifications (Weaver, 2011). However, it’s not always the case since some technological changes create job opportunities. The only option that these victims are left with is either to go back to a learning institution and acquire the skills or they may choose to find a job different from the one held earlier. Finding a new job is difficult and acquisition of skills from learning institutions is time consuming, thus, these victims may take long before being employed once more.
Frictional Unemployment
Another instance is when the production costs in one country rises so much that companies start operating at losses and are not even able to breakeven. This is the current case for manufacturing companies in Australia. These companies may consider the cost of a similar production line in a different country and if they find it profitable to operate in that new economy rather than the domestic economy, they may opt to shift their operations to that economy (Nash, 2017). Those who are hurt most are the previous employees. In the end, most of these employees are left behind with skills but no job to match them. Other industries might not be in need of these skills and thus difficult to get a job. This types of unemployment as we have noted is that it may extend to the long run; this is why it becomes a major concern for the Australian government.
Friction unemployment occurs because of the presence of information asymmetry in the labor market. This means that those who need employees have no information on the existence of that who is seeking employment (Juneja, 2018). The one seeking employment on the other hand has no information on the firms is need of employees. Thus, time passes before these two parties match each other. During this search period, the victims are said to stay frictionally unemployed. Another cause is when someone with a job but lacks satisfaction in it makes a decision to quit the job and seek for another job. During the search period, this victim remains unemployed.
Another cause is the choice of whether to engage in an underpaying job that does not meet the skills acquired at colleges or to wait for a job opportunity that matches skills acquired at the university to show up. This is mostly the case for the fresh graduate; most likely their choice will be to wait for that uncertain opportunity since they consider other jobs to be substandard for them. With the present situation of high unemployment rate in Australia, such an opportunity may take long to show up and thus the victims may take a longer time before they become employed. From this analysis, this form of unemployment is voluntary and occurs in the short run. It thus doesn’t attract much attention for the Australian government.
All economies are faced with business cycles where businesses perform well and other periods when they perform poorly (Jain, Trehan and Trehan, 2014). Good business performance ensures that there is high level of employment as more jobs are maintained and more are created as business undergoes expansion (Riley, 2015). On the contrary, poor business performance destabilizes business revenues making it unbearable to maintain jobs. Businesses cut the number of employees to avoid high labor costs during this period in order to ensure that firms maintain significant revenues (Amadeo, 2018). Let’s consider the 2007-09 global recession where the unemployment rate was very high and remained high for some years. The unemployment rate for Australia and other economies have been high ever since the GFC. This tells us that this unemployment may extend to the long run and thus it attracts the attention of the policy makers. The imposition of monetary and fiscal policies or a mix of the two is important to stimulate the economy during the poor business cycles.
Cyclical Unemployment
In any given economy, there are seasonal jobs where the production process or the provision of certain goods and services is only at a given period of time. During this period, many people are employed, however, when the period ends, these previously employed workers are left without a job (Pettinger, 2017). Not unless they change to another line of business these people will remain unemployed until the period resumes. An example is those people who sell ice creams during the summer, when winter sets in, these sellers cannot sell ice cream in a cold season since the demand becomes lower. Another case is for those people who offer ice scooping services during the winter, when summer sets in, the ice is no more and thus they have to wait for the next winter without jobs. From this analysis, it can be established that this unemployment is only temporary and thus does not attract the attention of policy makers.
The graph above represents the changes in the Australian unemployment rate from 2013 to 2018. There has been some improvement in some years while the performance was poor in other years. The same level reported in 2013 was reported during the last quarter of 2017. However, in between the performance was very poor (the unemployment rate was very high). In 2013, Australia reported a 5.4% unemployment rate, this rose to 5.9% in 2014, rose to 6.4% in 2015, fell to 6.0% in 2016, and fell further to 5.9% in 2017. The last fall was to 5.5% in the first quarter of 2018. The highest unemployment rate level was in 2015. This period can be said to have had the poorest economic growth of the five years that has been analyzed. The trend line shown an improvement in the unemployment rate from 2013 to 2018. If this trend continues, Australian economy will be attractive because of its ability to create more jobs for its citizens. However, an employment rate of 5% and above is still very high.
Woodhouse (2018) noted that part time jobs decline in February 2018 resulting in an increment in the Australian unemployment rate. This rise was also contributed by the increment in the participation rate in the Australian labor force. In January 2018, the unemployment rate was 5.5% seasonally adjusted, this was what was expected to hold for the coming months. However, the rate rose to 5.6% only a month down the line. In February, the number of jobs added by the Australian economy were 17,500 despite the 20,000 forecast. Full time jobs were reported to grow by 64,900 compared to 53,200 for the month of January. However, the fall in part time jobs was by 47,400; in January, part time jobs rose by 65,600. There was a 60.6% participation in February which is a fresh new record. The overall participation rate rose to 65.7% which is the highest proportion since 2010.
Policies to Address Unemployment in Australia
There is a differential in the unemployment rate across the Australian states (Delalande, 2016). As at March 2018, the Northern territory had the lowest unemployment rate, followed by; Australian Capital Territory, New South Wales, Victoria, South Australia, Queensland, Tasmania and lastly West Australia. This means that West Australia performed poorly that all the other states (Cassells, 2017). We can say that the highest fall in the part time jobs occurred in this state or rather, it didn’t experience much growth in full time jobs; or finally we can conclude that its participation rate was the highest. It means that the standard of living in Western Australia is lower compared to other states
Unemployment Issues
There are many Australian citizens without productive jobs but are excluded in the unemployment estimation. They are considered to fall under disguised unemployment. These include those with disabilities or are sick but without jobs but could do jobs if there were in their normal conditions. Another is the underemployed workers doing part time jobs but are considered employed. The other group is those workers forced on early retirement, these people are still under the working age but are excluded from the estimation. The other form of disguised unemployment is when many people work in a job that could be done by fewer people. E.g. in Australia you may find 15 people working in a small family business; they may be considered employed but in the real sense, if the job could be done by 5 people, the other 10 are unemployed.
The unemployed and the employed should make their decisions concerning jobs wisely to avoid falling on the unemployment trap which might last for long. The unemployed can lower the level of frictional unemployment by not choosing jobs, these people may engage in underpaying or lower standard jobs while waiting for that job matching their skills to be presented to them. The government can also improves the conditions of job searching by making the information on the firm’s needing employees readily available to the job seekers, and the information on the job seekers qualifications to the firms needing employees. This action will lower the time taken before the two match up. Those who are employed should understand the costs of unemployment and they should not quit jobs to look for other jobs, instead, they should continue staying in their job but still continue applying for other jobs, once they get the new job, quitting is now worthwhile.
The government should take seriously the key factors accelerating the Unemployment rate and take immediate actions. One of the most important actions would include a reduction in the corporation tax rates. Favorable domestic production costs will prevent firms from shifting to other economies bearing the fact that it also involve big costs. The costs are high and they should be lowered in order to enable businesses to expand and growth. The closed businesses may even find it attractive to reopen their businesses thus creating additional jobs. The other action would be to set a rule of how wages will be raised and after what duration to avoid union pressures occurring every now and then.
Conclusion
The government’s policy attention is only on the structural and cyclical unemployment since their impacts lasts for long. The short terms forms doesn’t attract any attention since they are expected to be resolved after a short period. It is difficult to maintain a low unemployment rate in Australia, this is because there exist various pressure on unions on the wage rates. Unions are demanding higher pay for the employees which is greatly weakening the demand for employment. There is no single period the Australian economy will be able to achieve an equilibrium in the labor market given such pressures.
In the year 2018, there has been a growth in the number of full time jobs, a decrease in part time jobs and an increase in participation rate. This has resulted in an increased unemployment rate. Thus, it can be concluded that part time jobs play an important role in providing employment in Australia. The increase in full time jobs was neutralized by the decrease in part time jobs. In this paper, it has been deducted that most of the key factors accelerating the unemployment rate could be easily controlled by the Australian government.
References
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